Electronic funds transfer (EFT) is the modern alternative to the old check-clearing process when sending and receiving funds between a payer and a payee. An EFT is done through the system of automatic clearing house (ACH). In the U.S., the Federal Reserve and the private Electronic Payments Network (EPN) are the two ACH operators, with each handling 60% and 40% of the total transactions respectively. The two terms, EFT and ACH are sometimes interchangeable both referring to the process in which funds are electronically moved via the automatic clearing house system.

Parties Involved in EFT Processing

A payer, a payee, the payer’s financial institution, the payee’s financial institution, and the ACH operator are the parties involved in order to initiate and complete an electronic funds transfer. Funds can be sent by the payer instructing his or her financial institution, or alternatively requested by the payee instructing his or her financial institution. The depository financial institution initiating a transaction instruction on behalf of a customer either to send funds or request funds (receiving funds), is called originating depository financial institution (ODFI) and the depository financial institution at the other end receiving instruction is called receiving depository financial institution (RDFI).

Credit Transaction and Debit Transaction

For a transaction instruction to go through, the instruction initiator, be it the payer or the payee as facilitated by the bank, must have first obtained the authorization from the instruction receiver, the corresponding payee or payer, to be allowed the access to the receiver’s account. Having been given the account number and the bank routing number for the receiving end, the transaction initiator sending or requesting funds can then effectively deposit funds into or take funds out of the transaction-instruction receiver’s account.

Therefore, depending on the direction of the instruction flow, when the instruction is to send funds to the instruction receiver by the payer, it is a credit transaction with funds deposited into the instruction receiver’s account, the payee‘s; when the instruction is to request funds from the instruction receiver by the payee, it is a debit transaction with funds taken out of the instruction receiver’s account, the payer’s.

Example of Credit Clearing and Settlement

Setting up a bill pay with your bank. Step1, obtain account information from your payee: a lender, the cable company, the utilities, or etc. Step 2, make and confirm a bill payment on your bank’s website. Step 3, your bank as the ODFI sends your payment instruction to the ACH operator. Step 4, the ACH operator routes the transaction to the payee’s financial institution, the RDFI. Step 5, the payee’s bank makes funds available to the payee by crediting his or her account. Step 6, the ACH operator settles the transaction between the participating financial institutions.

Example of Debit Clearing and Settlement

Making an online credit card payment on your credit card company’s website. Step 1, submit your account information to your payee. Step 2, your credit card company requests your payment through their bank. Step 3, the credit card company’s bank verifies the payment request and as the ODFI, sends the instruction to the ACH operator. Step 4, the ACH operator routes the transaction to the payer’s financial institution (your bank), the RDFI. Step 5, your bank takes funds out of your account per request. Step 6, the ACH operator settles the transaction between the participating financial institutions.

Other types of merchant account agreements include setups for mobile credit card processing, where it may be necessary to know a little bit about how banks process transactions between the accounts of the buyer and the seller.

From store front merchant account types to wireless or Internet based merchant account options, the merchant account company details what needs to go on for setting up these opportunities for businesses that sorely need to cash in on non-cash transactions.
A merchant account is a mix of equipment, service agreements, software, and banking protocols. A merchant account is not a one- size-fits-all solution, nor is it a generic process. When a business chooses to link up with a merchant account provider, there are various details to negotiate and document.

A lot of businesses and organizations depend on the ability to receive and process Automated Clearing House (ACH) payments. The ACH system is an electronic funds system that transfers monetary payments. For example, ACH debit payments are often made as people pay for various things such as club dues, insurance payments, contributions to retirement accounts, mortgage payments, tax payments, donations to charities, telephone purchases and online purchases. In fact, the total amount of ACH payments last year was more than $14.98 billion and the amount continues to go up every single year. If you have a business or organization and if you think you want to receive ACH payments, you would have to find an ACH processor that could achieve the following things.

For example, if you wanted to receive ACH payments, you would want ACH processing that makes sure that you receive payments in a consistent and reliable manner. You would want to be able to receive any type of payment that people might make in the payment process. For example, in ACH processing, you would want to be able to receive any kind of credit card or debit card that people might use to make their payments. You would want to be able to accept online payments, telephone payments, payments that are made in person or payments made through a lockbox. You would also want check verification in the event that people wanted to pay using a check as opposed to paying via credit card or debit card.

If there is ever a problem with the ACH processing, you would want there to be excellent customer service and technical support that could help address any questions that you have. Also, you most likely would want to have stellar fraud prevention mechanisms in place so as to protect your business or organization.

If you wanted to receive ACH payments, you would want the ACH processing to have the latest technology and security so that you could trust that the ACH processing of payments would go safely. You would not want to have to worry about problems with the system or problems with the safety of receiving payments through ACH processing.

So, as you seek a company to help you process ACH payments, keep in mind that the company must do all of the aforementioned things to help you get the ACH payments in a timely, efficient and safe manner.